The colored coins or colored coins are one of the attempts of the cryptocurrency developer community to expand the functionality of Bitcoin, allowing the creation of tokens that serve to represent other currencies or assets of interest on the blockchain. 

Las colored coins o colored coins are one of the first creations of the community in order to create tokens on Bitcoin, in order to enjoy its enormous power, security and global reach.

To achieve this, the colored coins make use of the programming capabilities of Bitcoin, through Bitcoin script. Basically, what they do is create a program that uniquely identifies Bitcoin, while assigning properties that represent that new token or colored coin.

In this way, each transaction of a colored coin in the background is a Bitcoin transaction, only that within its script it includes instructions that only nodes and wallets adapted to colored coins will be able to understand. As has happened with the ERC-20 tokens de Ethereum, which emerged later, this type of operation opened the doors for a whole new amount of functionalities.

Although nowadays it is a protocol that is hardly used, the truth is that it inspired the ability to create other types of assets on a main network, something that Ethereum would later exploit, reaching many more use cases.

That said, we can define a colored coin as follows:

A colored coin is a special token that works on the Bitcoin blockchain. A token in which a series of instructions are defined within its Bitcoin Script that can only be fully understood by nodes and wallets adapted to it. In this way, it is possible to create a completely new token, with its own accounting within Bitcoin.

Origin of the Colored Coin

The origin of the colored coins stems from the need to create new tokens and transfer assets on the Bitcoin blockchain. With these tokens it is possible to represent anything in the world, from stocks, commodities, real estate, fiat currencies and even other cryptocurrencies. And since necessity is the mother of all creations, this necessity led to the fact that in March 2012, Yoni Hesse (the CEO of eToro), driven by the idea of MasterCoin, he presented the idea of ​​"colored coin" on his personal blog.

The idea was curdling, and in forums like Bitcointalk the idea of ​​colored coins began to take more shape and interest. All this led to that on December 4, 2012, Meni Rosenfeld will create a whitepaper explaining the colored coins. It was the first formal work of a colored coin, and although incomplete, it captured the attention of the community.

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